India: the shine is off the once fast-growing economy

Activists of Social Unity Center of India (SUCI) scuffle with police officials as they attempt to arrest them during a law-violation protest against the recent petrol price hike in Kolkata on May 31. Following the revelation that India's economic growth dropped to 5.3 percent in the fourth quarter -- the lowest rate in nine years -- economists, investors and journalists are asking whether the wheels have come off.

Last week, as India ground to a halt thanks to a nationwide general strike, a clever member of the country's twitterati observed: "When it's shining, it's India Shining; when it's bandh, it's Bharat Bandh."

So true. Bharat, an archaic name for India used as shorthand for its huge population of poor people who don't speak English, was never really part of the rapid economic growth encapsulated in the Bharatiya Janata Party slogan "India Shining" in 2004. Sure, people got a bit wealthier. Some may have even jumped into the middle class. But the poor mostly stayed poor, or at least in the "high-risk" category, where there's nothing to fall back on when things go south.

And now, it looks like the shine, and maybe the wheels, have come off the India story altogether.

I'll be talking with locals about what this means for real people later this week. But it's hard to exaggerate the stakes: as Forbes India writes in a cover story this week, where once India's rise to superpower status was viewed as inevitable, now there's only a 50-50 chance that India will join the ranks of developed nations by 2050.

If you're following India at all, you know the basic data. Inflation is running around 10 percent, and the beancounters shocked the world last week by revealing that the overall economy only grew 5.3 percent during the three-month period ended March 31. The rupee has plunged against the dollar. And almost every other indicator is dismal.

"Manufacturing grew by just 2.5 percent over the entire year and contracted in the final quarter of the fiscal year compared with a year earlier," Simon Denyer notes in a more-gloom-more-doom piece for the Washington Post.

"Services, usually a double-digit growth booster, are hovering around 8%," writes the BBC. "Most worryingly, farm growth is below 2% and a below-normal monsoon has been forecast. It is ironical that all this is happening under the leadership of an Oxford-educated economist."

"Overseas investors, for the second straight month, in May pulled out funds of Rs 347 crore ($63 million) from the equity markets amid concerns over domestic economic growth and depreciating rupee," according to FirstPost.in.

Now, according to Rajeev Malik, senior economist at CLSA Singapore, "The country is now stuck with lower growth than its potential: not the “Hindu rate of growth” of about 3.5 percent that dogged the state-stifled economy before big-bang reforms two decades ago, but a 21st-century version of that, which Malik calls “growth with a government-incompetence discount," FirstPost writes.

Indeed, that incompetence hardly shows signs of abating. As the BBC's Soutik Biswas puts it: "What India doesn't have is a bipartisan, mature political consensus on the direction that the economy must take. How can a small group of politicians in the parliament stymie major reforms? Has India's politics and economy become hostage to petty interests, helped abundantly by a government which is seen as effete and weak?"

But even if the opposition succeeded in a no-confidence motion tomorrow, there's a healthy chance that Manmohan Singh's Congress Party would nevertheless emerge at the head of the next government. Another weak coalition led by the opposition Bharatiya Janata Party (BJP) would be no better. And the oft-talked about, rarely witnessed "third front" government, were it to materialize, would probably be equally if not more problematic, because it would include more players, with power more equally distributed among them.

In that context, 50-50 odds actually sound pretty good.

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